Re: Re: Re: whole life

Subject: Re: Re: Re: Re: whole life

Comments:
: Good questions, Clint! : : : Moreover, I don't know many financial vehicles that allow you to withdraw money, income tax free and still earn interest. : "Withdraw" has several meanings...one is quite specific...the other general and generic. With certain kinds of life insurance policies you can always withdraw up to the sum of the premiums you've paid (called your "basis" in the policy) with no tax consequences. Annuities generally have limited "withdrawl" rights also, usually 10% to 15% of the amount paid in. The money you literally "withdraw" no longer earns interest. You cannot "withdraw" money from a Whole Life policy. : On the other hand, if by "withdraw" you mean have access to, tax-free income is only possible through a policy loan. The money you borrow is considered a "transfer of capital", not the "realization of income". That's why it's tax free. Most people believe you can borrow your own money in life insurance. You can't and don't. You are borrowing the company's money in Whole Life, because they own the cash value. With Universal Life, you pledge the amount you want borrow from your cash value (YOU own the $$$, not the insurance company) and borrow an equal amount from the company. This makes it a "transfer of capital" and therefore tax-free. This also makes the loan rate a critical issue if you hope do this on a cost-efficient basis. Most Whole Life policies charge you 8% gross. But, a few UL's have 0% "wash loans" -- a much more cost-efficient way to borrow for tax-free income. The amount you borrow never has to be paid back. Death benefits are simply reduced by the amount of the loans. Thus, you have benefit of tax-free income at the expense of your beneficiaries who will receive a lower death benefit. In loan situations, the amount you borrow will still earn interest. : If you did that with a mutual fund, you'd be taxed. : Yes, buy at lower capital gains rates. : And, sticking money in savings account yields very low interest, only enough to stay pace with inflation. And, substantial interest earnings on savings accounts amount to income tax liability. : Yes, with "gain" taxable every year at ordinary income rates. : So where would you recommend sticking the money for sometime, tax deferred and still be able to accumulate a nice nest egg? : Personally, I'd consider an Option 2 UL with a zero-net cost "wash loan", but only after my tax-qualified plan options had been max'd. Compared to the Whole Life and Variable options, it is simply the most cost-efficient way to go. It works like a Roth IRA, but with much higher contribution limits and none of the "red tape" associated with qualified plans. : I'd certainly think life insurance, and so would more people if they knew more about it. It also helps to pass on estates and inheritances. Virtually anything can be passed on income tax free by incorporating life insurance in the proper way. : Sounds like your are a plant from the American Council of Life Insurance...but definitely not from Primerica! : : The only objection/question I have is this: Why would you use a life insurance policy as an investment vehicle? : You wouldn't! Life insurance is not an investment. It has a "floor" that you can't earn less than. A true "investment", on the other hand, has potential downside risk up to 100% of the money invested. Life insurance is a good supplement to real investments, especially tax-qualified plan investments like : 401(k)/IRA/TSA/SEPP etc. A properly structured life insurance plan can, however, increase your spendable income from qualified retirement plans by 40% to 90%, depending on your health and your investment strategy at retirement. : I'm not that knowledgeable on the topic, but I'm learning. : We're all learning, Clint. Nobody knows it all. The best way to learn, however, is to deal with facts, not opinions. : : Why would it be a bad decision to go the Primerica way and buy term and invest the difference in mutual funds? : Because their term insurance is twice as expensive as a quality, appropriate term policy from a top term player like First Colony, First Penn, or West Coast Life. Plus, it is not convertible. When buying term, there's a lot more involved than just price. Look at the benefit side. As far as their mutual funds go, there's plenty of info on this site about their high fee structure and lack of long-term performance. If you're serious, Vanguard and Fidelity have toll-free 800#. : Especially if the funds are earning much higher rates than a whole life plan. : Now you're comparing a 100% guaranteed financial product with a 100% risk product. There are too many distinct differences for any kind of honest comparison short of a 300 page book. : If you're just wanting to tax-shelter your money, you can always go with a variable annuity or IRA. : IRA's have low contribution limits, and all the distribution "red tape" associated with tax-qualified retirement plans. Remember, the government always penalized people who want to take their money back. Variable Annuities also have serious distribution limitations. To learn more facts about VA's you can go to the Security and Exchange Commission website and read "Variable Annuities: What you should know". A few good articles include LATimes.com Money Talk 4/15/01 "Here's One Sales Pitch That Says It's Time to Shop for New Advisor"...Business Week 9/20/99 page 144 "Annuities That Won't Cause You Pain"...and Forbes 2/9/98 page 106 "The great annuity ripp-off" featured on the cover as "Don't be a sucker! Variable annuities are a lousy investment" Have you considered Equity Indexed Annuities? They offer potential for market gain, but with no downside risk. : : Please correct me. I'm still learning. : Hope this has helped, Clint! hindi

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